The TMA Pai family-founded Manipal Education and Medical Group--which straddles the most coveted, recession-proof and non-cyclical businesses of education and healthcare—is not new to the world of deal-making and incubating interesting in-house enterprises. The group goes by the name of coastal Karnataka district Manipal where its flagship medical college campus resides. To take advantage of the growing sub-sectors in education, the group created a corporate entity Manipal Universal Learning, which has through an inorganic growth-led path, gained entry into areas such as online MBA, online tutoring, test assessment while it has raised external funds to grow organically. Recently, it closed a $43-million investment from PremjiInvest into Manipal Universal in the largest deal in this space this year. “We want to be a KG-to-PG company in education,” says Dr Ranjan Pai, managing director and CEO of MEMG.
Its other significant business, Manipal Healthcare Systems, too is on the threshold of expansion and fund-raising. In fact, MEMG was the first to look at a deal with Singapore’s Parkway Holdings asset, which is now in the throes of a takeover battle between Indian healthcare major Fortis Healthcare and Malaysia’s sovereign investor Khazanah. Having passed that opportunity, Pai is now placing his bets on a regional play driven by turnaround opportunities and management contracts. Though it may lack a national footprint, Manipal Health Systems is the third largest healthcare player in India, he insists. Apart from these twin companies, there are half a dozen ventures incubated by the group as strategic investments some of which may be ripe for exits. In a rare and candid interview to VCCircle, Pai says, “MEMG is more of an investor. Eventually, as these companies (Manipal Universal, Manipal Health Systems and so on) grow, we will have to keep raising money and we will become minority. We are open to that. We are not looking at exiting. We want our name to remain.” Excerpts:-
What is the education story for the group’s flagship Manipal Universal, which attracted a big $43-million funding from Premji Invest, looking like?
From a corporate entity perspective, we are there pretty much everywhere from tutorial, online tutorial, ICT-enabled delivery, test preparation, corporate training and global online MBA with U21. In India, the education play is mainly driven from technology, testing and assessment angle while overseas, we will build (university) campuses. We already have campuses in Dubai, Malaysia, Antigua and Nepal. We are looking at Abu Dhabi and Africa. In India, it is more about expanding our technology base in the online education space and be enablers of education rather than providing it directly.
You hold a significant minority in TutorVista Global which operates the domestic business under the Manipal K12 brand. There is talk that Manipal Group may look at buying out/scaling up your presence in TutorVista’s domestic business. What value will a K12 presence have for MUL?
Very rarely do education companies worldwide have the KG-to-PG spread. They are usually K12 or PG companies. We are not averse to go KG-to-PG in India. We are also looking at other K12 companies.
We are definitely reviewing it (TutorVista domestic business). We feel this is not the right time but, who knows, it may happen down the road.
How do you view the medical training market in India?
There is a huge shortage of doctors worldwide. In India too, the doctor-patient ratio is skewed. The limited number of seats is an artificial constraint. We have to look at innovative models not just increase seats. Malaysia has done it and US has done it by using public hospitals. You can use government hospitals or existing assets where private players can come in and augment that. It reduces the capex for the private players. In Malaysia, we have two government hospitals and we made no capex. We pay in terms of seats to the government. We have a similar model in Mangalore where we give a certain number of seats to the government and it uses it as part of the CET (common entrance tests). We give close to 100 seats to the Karnataka government and we spend on the hospitals, doctors and housekeeping. It is a good win-win situation. Hope this is opened up more.
What does the year look like for both the flagship businesses?
We have got a lot in our hands with these two large companies (MUL and Manipal Healthcare Systems). We will probably be helping them in acquisitions. As a group, we have been growing at 30-35% CAGR for five years.
Healthcare majors such as Fortis Healthcare and Apollo Hospitals Group have gone national. What are your plans on expanding your footprint?
In our opinion, healthcare will eventually be a local and regional play. People will stop travelling for healthcare. Two decades ago, people in the US used to travel to the Texas Heart Institute but today I don’t think people travel out of their hometowns. Health emergencies happen suddenly and, so, unless there is a rare case, people will not travel. The reason why people travel out of their cities is only because doctors are not available while patients are there in every city. Tier II towns are always a challenge particularly in certain specialties like cardiology or radiology.
We are probably the third largest healthcare player in India. We serve lot of cities like Vizag, Vijayawada, Salem, Goa, Mangalore, Tumkur and Bangalore. We have a cluster here. We are obviously not present in some of the larger cities. We will not do it just to be a national player. If we get a right opportunity, we will be there in large cities. We had plans (a 1,000-bed project) for Delhi but we pulled out when the economic crisis unfolded last year. We were not sure if we would be able to build the right kind of value, the economics were not working out. Delhi is a big hub for medical tourism from the northern belt and we are looking at management contracts. We are looking at capital-light models like leasing in such cities where land is expensive. But, if land comes cheap, we will look at having our own hospitals. Our balance sheet is in good shape. We are the market leader in Bangalore and we are exploring opportunities in other cities as well.
We have seen many instances of consolidation at play in healthcare such as Fortis-Wockhardt in the recent past. How do you view this to achieve scale?
It (consolidation) is always a good play. Healthcare needs a certain size and there are some opportunities we are looking at keenly. For us, the brand (of the potential target hospital) does not matter. We will look at a good hospital but underperforming maybe because of management bandwidth. That is where we could come and turn around the operations. Well-run hospitals will come at a price. We are looking at a turnaround play.
How are you planning to fund your hospital expansion plans?
We will raise one more round of funding. We are putting Rs 230 crore and looking at raising Rs 120 crore in the next round of private equity funding. We are going to put our own hospital and expand bed strength in most of our hospitals. We are renovating Manipal Hospital in Bangalore by putting 70 more beds. In Goa, we are putting around 100-odd beds and we already have a 50-bed hospital in Goa. We have close to 5,000 beds under MHS and we would like to add another 1,000 soon.
Is listing the healthcare company on the radar?
We are currently in the process of a restructuring and we see long-term value in the company (Manipal Health Systems). So, we bought back the stake of IDFC Private Equity, who has stayed invested with us for five years. At present, we hold 100% in Manipal Healthcare and 80% in Manipal Universal. With our next round in healthcare, the new investor will have a four-year play. We want to get bigger and are not looking at an IPO now. We have forked the healthcare division into a property company and an operating company. The assets will be with the property company and the operating company will not own assets. On listing front, Manipal Universal will perhaps be the first to go for that.
Indian healthcare companies are now going global. The ongoing Fortis-Parkway saga should be of interest to you. Any regrets on Parkway?
I think we are happy that we were the first ones to look at it (Parkway). It is a rare asset though I have no regrets. Looking back, we are happy. The structure we proposed was good.
Would you look at selling out if a major healthcare chain wanted to acquire your hospital division?
No, we would not do that. The way we have structured ourselves is that MEMG is more of an investor. Eventually, as these companies (Manipal Universal, Manipal Health Systems and so on) grow, we will have to keep raising money and we will become minority. We are open to that. We are not looking at exiting. We want our name to remain. If we do a deal with an Apollo or a Fortis, we will lose our identity. If there is a real good fit like the Parkway deal, which was a stock swap, and we did not have to lose our brand and would get a larger pan-Asian play, we are open to it. We don’t want to sell out and take cash.
In healthcare, what are the niches you are exploring?
Right now, we want to just consolidate but we are keeping an eye on all models. We are particularly watching the daycare surgery space.
How is the wellness-cum-retail business, Manipal Cure & Care, panning out? According to our information, the economic slowdown was not kind on the venture?
We have now merged it with healthcare. We learnt a lot as we got hurt a bit in that business. We were hit by the rental model in certain locations. We will now go city-by-city instead of doing one or two stores in each city. The good thing is patient and customer feedback has been positive. We will continue Cure ‘n’ Care under MHS. We shut down Bombay and Delhi stores and we will do more stores in Bangalore and at the right time, when we feel it is scalable, we will raise money.
What about Ecron Acunova, which has recently received investment from Orbimed?
We have a minority stake in that company in which we have been there for six years. We may look at an exit if the right offer comes. But we are not actively looking at it. Acunova has a good team, they got a good investor, it has stabilized and there are a lot of upsides there.
And, Stempuetics, the stem cell research company?
The stem cell therapeutic company has a good partner in Cipla, which is helping with R&D and marketing. The firm is focussing on therapeutic areas targeting spinal cord injuries, limb ischeamia and cardiac problems. They have enough money for three years.
Bangalore’s prominent promoters have set up prop funds. Any plans in that direction?
We do small amounts as strategic investments. We (MEMG) basically put capital to use by creating a team, adding the Manipal brand, incubating the business and taking it up to the pre-PE stage. We have done it with Manipal Universal, Manipal Healthcare Systems, Stempuetics, co-founded Acunova and Tutorvista. We keep getting ideas but there is nothing on my table now. What is more important is the team and execution capability. Either we do it ourselves by hiring a CEO or back a CEO with good ideas like K Ganesh of TutorVista.